Ethereum Restaking Can Give Birth to ‘Internet Bond’ Market, Will SEC Approve?

S&P Global Ratings recently published a report stating that the Ethereum restaking services offering an additional yield are gaining prominence and could lead to a solid “internet bond” market in the long term.

Similar to the bond market, holders of Ethereum earn additional yield by either pledging or staking their ETH coins to help with transaction verification on the Ethereum blockchain. Similar to lending out securities in fixed-income markets, ETH restaking reinvest the staking rewards and provide compounding returns to investors. Ethereum restaking platforms like EigenLayer have been much in the limelight recently. Amid this popularity, EigenLayer went live on the crypto exchange Coinbase recently.

The Rise of Ethereum Restaking

In a report published on Wednesday, Andrew O’Neill, S&P Global’s digital assets analytical lead, highlighted the importance of restaking in order to enhance economic growth within the crypto market.

O’Neill also stated that restaking allows Ethereum node operators to validate new services by using established tokens thereby eliminating the need for these services to create their own validator with their own, illiquid, and volatile tokens.

As of now, there are only a few active restaking services popular as “actively validated services”. The report by S&P Global also notes that the total value of ETH restaked in the EigenLayer has surpassed 5.3 million Ether, valued at a staggering $19 million. Earlier this week, EigenLayer opened the Phase 2 claims for the EIGEN airdrop.

Risks Associated with Restaking

The risks associated with restaking are primarily operational and specific to each actively validated service (AVS), though financial risks could emerge due to market speculation.

“We do not currently foresee significant ecosystem-level financial risk as staking and restaking are generally non-custodial and there is no rehypothecation of the collateral,” O’Neill writes. “The impact of restaking on system-level leverage must be monitored, particularly through borrowing and leverage metrics on decentralized finance (DeFi) lending protocols”.

Ever since the EigenLayer launch in April, the protocol has gained strong traction within no time. This could inspire more players in the market to bring restaking services.

However, the bigger question is whether the US SEc would allow more restaking protocols in the market. Another doubt is whether the SEC will allow restaking protocols to mature into “internet bond” market without proper regulations.

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Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

The presented content may include the personal opinion of the author and is subject to market condition. Do your market research before investing in cryptocurrencies. The author or the publication does not hold any responsibility for your personal financial loss.